March 26, 2013

IER Study Could Point Way for Policymakers in Transportation Bill

March 26, 2013

WASHINGTON D.C. — As lawmakers prepare for coming discussions about the best way to fund the federal government’s behemoth transportation and infrastructure legislation, a recent study by the Institute for Energy Research could provide a significant negotiating point for congressional leaders seeking to tie energy revenues to the highway bill. According to IER’s study, “Beyond the Congressional Budget Office: The Additional Economic Effects of Immediately Opening Federal Lands to Oil and Gas Leasing,” the federal government stands to receive as much as $2.7 trillion in tax revenues if Congress and the White House can agree on a policy to expand access for energy development.

As Congress continues to hunt for ever-elusive money to rebuild roads, bridges and transit systems, House Republicans are likely once again to turn to black gold.

In the tax-averse and conservative-heavy conference, transportation interest groups’ ideas about raising the gasoline tax or looking at distance-based fees are a tough sell. But expanding oil and gas drilling and using those revenues for infrastructure improvements represents what Speaker John Boehner has called a “natural link.”

On the other hand, that idea could threaten the bipartisan spring for Congress’s transportation committees, where House Transportation Chairman Bill Shuster (R-Pa.) and Senate Environment and Public Works Chairwoman Barbara Boxer (D-Calif.) are singing each other’s praises. The harmony could fade if Congress takes another crack at linking infrastructure and energy production ahead of the 2014 transportation bill deadline.

The House tried the controversial issue when tackling the last transportation bill in 2012.

Is it a conflict worth fighting? Only if the energy revenues can bring in enough money to stabilize the Highway Trust Fund, which faces yearly shortfalls nearing $15 billion in the near future, said one influential transportation lobbyist.

“If you can’t come up with some sort of guaranteed level of revenue that will actually make the Highway Trust Fund solvent, you could end up with a really divisive battle,” the lobbyist said.

There is broad disagreement over what sort of money expanded drilling in the Gulf of Mexico, the Atlantic and Pacific oceans and the Arctic National Wildlife Refuge could bring. The House tried to link a package of energy bills to the last transportation bill, but the infrastructure component crumbled as the energy bills passed the chamber, drawing 20 Democrats in support.

The House legislation also barely scratched the surface of the kind of money lawmakers are looking for. The Congressional Budget Office estimated the bills would bring about $4.3 billion over 10 years. House leaders are certain that’s too low.

“The CBO killed us on that,” Shuster told a gathering of state transportation experts last month. “I’ve talked to a number of experts that said it’s much larger.”

The idea has legs above Shuster’s head.

“Boehner still likes the idea,” a spokesman said, as does Republican Policy Committee Chairman James Lankford (R-Okla.). Former Transportation Committee member Lankford said his chamber is probably going to try again to link energy and transportation, and he agreed the CBO’s estimates were “very low.”

The Institute for Energy Research and Louisiana State University professor Joseph Mason have also criticized CBO for “lowball” estimates, including an August CBO report that ventured beyond the 10-year window CBO used for the House legislation.

The August report estimated that from 2023 to 2035, Arctic National Wildlife Refuge royalties would range between $2 billion and $4 billion per year, calling that number a “very uncertain” estimate. But that money wouldn’t be available immediately. And even if it were, it would pay for only a fraction of the money the federal transportation program will need annually beginning in 2014.

If the House were to reintroduce the energy package it passed in 2012, there is nothing to indicate that the CBO’s score would change since the energy exploration revenues remain gripped by the same uncertainty and risk.

“Everyone knows there’s more energy out there than CBO is giving them credit for,” the transportation lobbyist said. “But CBO has to make conservative predictions.”

A separate issue is friction with Democrats like Boxer, who can find common ground with Republicans on infrastructure but is unlikely to do so on drilling in ANWR. Rep. Peter DeFazio (D-Ore.), a key Democratic transportation voice, said it’s a fissure not worth opening, for both monetary and political reasons.

“The kind of money we need for transportation is not feasible under any scenario I can envision for revenues from offshore oil leases,” said DeFazio, who prefers a plan indexing taxes on gasoline sales, which he recently pitched to President Barack Obama. “It certainly wouldn’t be helpful with a lot of people on my side of the aisle. And it wouldn’t be helpful with the White House.”

But Lankford sees a silver lining in the Obama administration’s embrace of an Energy Security Trust proposal that calls for directing $200 million for 10 years in annual energy lease revenues toward research on vehicle technology like fuel cells and natural gas cars. That’s a step toward “common ground,” Lankford said, because it shows the White House wants to invest energy dollars in transportation. But he prefers that the money go to roads and bridges.

“I don’t see a great gain … for us to say, ‘Let’s use oil and gas revenues from expanded exploration to go into inventing new cars that won’t drive on oil and gas,’ when we have a transportation infrastructure system that’s falling apart,” Lankford explained. “To me, that does two things: One, it increases vehicles that don’t pay a gas tax onto the road. And No. 2, it continues to add things on the roads that are currently crumbling.”

Another wrinkle: The White House plan doesn’t include any expansion of drilling, and White House energy adviser Heather Zichal has specifically said ANWR is “off the table.”

Philosophical difficulties also exist on the idea of steering energy profits to interstates and transit systems, which until about 10 years ago were paid for on a federal level with gas tax receipts. Getting away from that “user-pay” system irks many transportation experts because the gas tax rewards fuel-efficient drivers and forces frequent drivers to pay more for the roads they use.

Economist Rick Geddes, who served on a revenue-study panel after the 2005 transportation law, worries not only that reliance on drilling revenue would erode that user fee, but that it would be susceptible to raids in a way that the Highway Trust Fund is not.

“When I hear about a tax on drilling that’s going to pay for infrastructure or something like that, I just see that thing diverted over time,” Geddes said.

In the end, though, the proposal’s success will be determined by money. A financing package that includes some drilling revenues as a way to pay for a robust infrastructure program is perhaps more palatable than calling for a higher gas tax or introduction of a distance-based fee system.

Top Transportation Committee Democrat Nick Rahall (D-W.Va.) predicts that whatever lawmakers come up with when it comes to the drilling-infrastructure link, it’s not going to solve the great debate over transportation revenues. Shuster, too, has called the idea just “part of the solution.”

Rahall, a former House Natural Resources chairman, said the idea is certainly “in the mix” of options but that it’s unrealistic to think oil and gas production can provide commuters a free lunch.

“It’s not the panacea for all of our problems. We can’t drill our way out of the deficit; we can’t drill our way out of the infrastructure deficit,” he said.